University to Pay $18.2 Million to Settle Tax Suit by Residents

A legal challenge to the University’s tax–exempt status was withdrawn last month as Princeton agreed to pay $18.2 million over the next six years, with part of the payment to the town and part to provide property-tax relief to lower-income residents.

Twenty-seven residents had joined in litigation that sought to overturn the property-tax exemption of about 170 campus buildings and the University’s tax-exempt status as a whole, asserting that commercial licensing and royalties from the work of faculty inventors constituted for-profit ventures, among other claims.

The case was scheduled to go to trial in New Jersey Tax Court Oct. 17, with lawyers for the University planning to call President Eisgruber ’83 as their first witness.

But on Oct. 14, after a month of negotiations, the University announced that it had reached a settlement with the residents, who in return had agreed to withdraw their legal challenge. The University agreed to make the following payments:

• $10 million to an estimated 870 Princeton residents who have received property-tax assistance from the state under New Jersey’s homestead benefit program. The first $2 million will be paid in 2017, with $1.6 million to be paid annually for the next five years. It was estimated that the residents would receive about $2,000 each in the first year, with the amount serving as a cap for subsequent years. Any funds not distributed are to be donated to 101: Inc., a nonprofit that provides scholarships to Princeton High School graduates attending a college other than the University.
• $1.25 million over the next three years to the Witherspoon Jackson Development Corp., a nonprofit that supports housing and other needs of economically disadvantaged residents of the Witherspoon-Jackson neighborhood and elsewhere in Princeton.
• $3.48 million as a contribution to the town of Princeton in 2021 and again in 2022. The University is in the third year of a seven-year agreement with the town to pay a total of $21.7 million in unrestricted contributions; $3.48 million will be paid in the last year of the agreement, which runs through 2020.

“We had every confidence that the courts ultimately would have affirmed the University’s continuing eligibility for property-tax exemption on buildings and facilities that support its education, research, and service missions,” Eisgruber said in a statement, but the University concluded that the contributions under the settlement would be a better use of funds than continuing to pay legal costs.

Bruce Afran, a lawyer in Princeton who represented the residents, told The Wall Street Journal that the litigation had the goal of keeping disadvantaged families from being forced from their homes. “We don’t want Princeton to just be a preserve of the well-off,” he said.

The agreement contains what was referred to as a “clawback” provision: From 2018 to 2022, if University property-tax exemptions are challenged in court and the challenge is not withdrawn or dismissed within 120 days, the tax-relief and Witherspoon-Jackson contributions will be cut in half and the commitment to make contributions to the town in 2021 and 2022 will no longer apply.

The University is paying $11.1 million in property taxes to Princeton this year, a University spokesman said.